Suggestions on laddering money saved for TRUE expenses - I-bonds > T-bills >MoneyMarked Funds > ??
I usually put cash in my bank account (BOA) for items which are my TRUE expenses such as:-
- Emergency funds - 6-month of expenses savings
- HSA OOP medical funds(Annually),
- Property Tax(Semi-Annually)
- Insurance (Semi-Annually)
- Parent's funds(Quarterly),
I am aware about the I-bonds limitation w.r.t ,redemption for expenses will start after 1 year, with 3 months EarlyWithdrawalPenalty and no penalty after 5 years.
Wondering if it makes sense to ladder this into I-bonds monthly, to dump this cash there?
Are there any better options available for above secured-cash, since I would need these amount at some interval for sure for above expenses?
My I Bonds and savings and money market accounts are just part of my budget. I don't actually ladder anything. I buy I bonds every month, and the only time we stopped was when were about to move in order to build up some cash reserves. Savings accounts and money markets are fairly equivalent in terms of liquidity. This is more about cashflow needs than about what budget categories are stored where.
Also consider that I Bonds are tax deferred, so you need to consider the tax hit if you draw a large amount all at once. Additionally taxes are due at the end of the 30th year when they stop accruing interest if they have not been cashed earlier.
more about cashflow need
Can you elaborate on this further re:cashflow needs and how you create the portfolio structure based on it? My plan was to see which gives a better yield in a risk-free manner, since expenses cost are fixed, and hence cannot risk principal in the stock market for such
This is a timely question. Overall, the philosophy I've come around to is, "The interest rate I earn on my cash isn't going to make a big difference in either the short or long run. So it's worth taking steps to maximize it, but only if those steps aren't going to cost me much in time, liquidity, or complexity."
So right now that means a combination of an online savings account (Ally, currently at 1.5%—not the best rate out there, but far from the worst), I-bonds (I also contribute monthly), and a Vanguard MMF, which is now paying much less than Ally. The only reason I haven't transferred the Vanguard balance to Ally is that I know the day I do, Ally is going to chop their rate in half. 😬
All my true expenses money and my E-fund money is in a HYSA at Ally. Their rate is now 1.5%, but I doubt it will stay there for long with the recent further drops in the treasury interest rates. I am going to save up 6 months expenses there and am saving for the type of true expenses you talk about, at least those that aren't paid out of my escrow account. I'm not wishing I had just said no to the escrow account and done it myself to earn a little interest on my true expenses as I'm saving for them, but it is nice to know those bills are taken care of and not my problem, even if it means missing out some interest. I have enough to deal with already. I've never bought I-bonds, although with the way we are printing money right now, maybe I should, but I doubt I would want to put true expenses there because I need to draw on them often and what I'm doing now is easy.
Is the overall consensus to keep money for True Expenses in a savings account with a decent interest rate?
I'm trying to relate what I'm reading here to Canadian equivalents, but the offerings between US and Canada are quite different.
To help stay ahead of yearly inflation, I put a portion of my cash reserves into a short-term GIC ladder, which is most similar to CDs, I think. Rates vary depending on the institution but my intent is to get ahead by the following year by the rate of inflation as the value of savings inevitably decreases. I also supplement with regular contributions.
This kind of money needs to remain liquid and retain as much value as possible in order to help in a tight spot (like emergency savings). Investing it isn't an option and using a GIC ladder is just enough. I'm hoping to discover a middle ground. Maybe it's wishful thinking. I'd like to hear others' thoughts.